We’ve all seen those fun Lexus commercials with the beautiful new car wrapped in a big bow somehow sitting under the indoor Christmas tree (that never happens to me). The tag line is the “December to Remember."
What I’m more concerned about right now is the upcoming “September to Remember," as we head into a period which has the potential to be very choppy from an investment point of view.
I really can’t recall when so many different types of “headline risk” have come together at the same time, but we’ve got some doozies coming, and the press is sure to have field day.
In my opinion, the primary driver of markets in the next few weeks will once again settle around the Fed. Financial markets have been attempting to “price in” the likelihood and scope of the Fed’s policy change regarding its money printing, asset purchasing program known as Quantitative Easing or QE.
It was the Fed’s first QE program in March 2009 that served as the spark for the positive stock market trend continuing to this day, with the stock market (S&P 500) up nearly 140 percent since this program was announced. While this sounds like a good thing, QE activity also presents some unique risks and if continued to long could actually threaten the value of the dollar itself.
Many investors, however, consider QE as a primary driver of the stock market, so it’s not hard to figure out why they are nervous about changes to the program. But the Fed has been giving indications it would begin tapering the program in the September time frame and in a few weeks it is likely we will know what this means. Markets will be roiled in just about any scenario.
The Fed also dominates the second headline on the list as well, as sometime in the next month or so the president will announce who will succeed the current Fed Chairman Ben Bernanke when his term ends early next year. This news will shed some light on the likelihood of programs like zero interest rates and QE continuing in the future.
Fed chairmen have an incredible influence on our nation’s financial system, and there have been only two changes in this key position in the past 26 years. When this announcement comes it will be dissected closely and once again markets will be roiled in just about any scenario.
If all this wonkish financial news wasn’t enough, we now also have potential trouble in Syria to provide a volatile backdrop. While I personally think Syria is about as economically meaningless as a nation can be (they have very little oil), the potential geopolitical ramifications of more American conflict involvement can be underestimated.
So buckle your seat belts, enjoy the long weekend and get ready for some interesting times ahead.